Moving the HME Industry Forward


Physician Orthopedic Bracing Program: Support Services by DME Supplier

January 4, 2016

AMARILLO, TX – Assume that ABC Medical Equipment is a DME supplier that specializes in providing custom-fitted and off-the-shelf (OTS) orthotics to customers. Assume that ABC wishes to enter into an arrangement with a physician to assist with the organization, implementation, and management of an in-house orthopedic bracing program.

Pursuant to the arrangement, ABC will assist the physician (i) in obtaining a Medicare DMEPOS supplier number, (ii) with inventory and order management, and (iii) with training, pre-authorizations, charting, billing, claim denial appeals, collections, and regulatory and compliance guidance. Assume that ABC will not provide marketing services or make referrals to the physician and the physician will not make referrals to ABC.

Physician May Bill Part B for Custom-Fitted and OTS Orthotics
Orthotics are classified as either custom-fabricated, custom-fitted or OTS. The primary distinction between custom and OTS orthotics is the level of expertise needed to properly fit the orthotic to the patient. OTS orthotics are defined by statute as orthoses that “require minimal self-adjustment for appropriate use and do not require expertise in trimming, bending, molding, assembling, or customizing to fit an individual.” The CMS definition of “minimal self-adjustment” is “an adjustment that the beneficiary, caretaker, or supplier of the device can perform and does not require the services of a certified orthotist…..or an individual who has specialized training.”

Suppliers of OTS orthotics are exempt from complying with the DMEPOS Quality Standards specific to custom-fitted orthoses. OTS orthotics may be billed by any provider enrolled as a Medicare DMEPOS supplier because specialized certification is not required. The same is not true for custom-fitted orthotics.

Custom-fitted orthotics are prefabricated devices, manufactured in quantity without a specific patient in mind. The device may be supplied as a kit that requires some assembly and/or fitting and adjustment, or a device that must be trimmed, bent, molded, or otherwise modified by a certified orthotist or an individual who has equivalent specialized training in the provision of orthotics, such as a physician, occupational therapist, or physical therapist, in compliance with applicable federal and state licensure and regulatory requirements.

CMS requires a physician to enroll as a DMEPOS supplier in order to bill Medicare Part B for orthotics. If a physician enrolled as a DMEPOS supplier adheres to the DMEPOS Supplier Standards, DMEPOS Quality Standards and state licensure requirements, then the physician may bill Part B for custom-fitted and OTS orthotics.

State Licensure Requirements
The states have rules governing licensed orthotists. For example, Tennessee defines an “orthotist” as “an allied health professional who is specifically trained and educated to provide or manage the provision of a custom-designed, fabricated, modified and fitted external orthosis to an orthotics patient, based on a clinical assessment and a prescription from a health care practitioner authorized by law to write such prescriptions, to restore physiological function or cosmesis.” With respect to practitioners other than orthotists, the Tennessee rules state:

Nothing in these rules shall be interpreted as limiting or restricting a health care practitioner licensed under any chapter of Title 63, Tennessee Code Annotated, from engaging in the full scope of practice allowed by such person’s license.

In Tennessee, physicians are “health care practitioners” under Title 63 of the Tennessee Code, which defines the “practice of medicine” as follows: “Any person shall be regarded as practicing medicine within the meaning of this chapter who treats, or professes to diagnose, treat, operates on or prescribes for any physical ailment or any physical injury to or deformity of another.”

Based on the language of the Tennessee rules, it appears that Tennessee’s orthotist licensure requirements apply to custom-fitted orthotics and not to OTS orthotics. It also appears that Tennessee physicians are not required to comply with orthotist licensure requirements.

The licensure requirements will vary from state-to-state. However, the example that Tennessee gives us is likely similar to licensure requirements in a number of other states.

42 U.S.C. 1395nn, commonly known as the “Stark law,” prohibits a physician (or an immediate family member of the physician) from referring patients to an entity for the furnishing of certain designated health services (“DHS”) for which payment may be made by Medicare if the physician has a financial relationship with the entity.

Prosthetics, orthotics, and prosthetic devices and supplies are included in the definition of DHS. Under the Stark law, a physician who has a financial relationship (an ownership interest or a compensation arrangement) with an entity that provides DHS may not make a DHS referral to that entity for which payment may be made under Medicare unless a statutory or regulatory exception applies.

One such exception is for “in-office ancillary services.” The exception, in relevant part, applies to services that are: (i) furnished personally by the referring physician, by another physician in the same group practice, or by individuals who are directly supervised by the physician; (ii) furnished in a qualifying location; one qualifying location is a building in which the referring physician or members of the same group practice furnish physicians’ services at least 30 hours per week, including some services unrelated to the furnishing of DHS; and (iii) billed by the physician performing or supervising the services, by a group practice of which the physician is a member, by an entity that is wholly owned by the physician or group practice, or by an independent third-party billing company.

Under the proposed arrangement, above, Medicare beneficiaries receive orthotics from the physician. A physician may prescribe the orthotic (custom-fitted or OTS), fill the prescription, and bill for the orthotic so long as the in-office ancillary services exception requirements are met. The billing element of the exception does not exclude ABC from providing billing services so long as the physician’s or group’s DMEPOS supplier number is used.

Medicare Anti-Kickback Statute
42 U.S.C. 1320a-7b(b), commonly known as the Medicare anti-kickback statute (“AKS”), provides for criminal penalties for any person who solicits, receives, offers, or pays any remuneration to a person to induce that person to refer an individual for items or services reimbursable under federal health care programs, or to purchase, lease, order, or arrange for or recommend purchasing, leasing, or ordering any such item or service, subject to certain specified exceptions. Courts interpret the AKS broadly; many have held that the AKS is violated if one purpose of a payment is to induce referrals, even if the payment is also intended as compensation for services.

In 2003, the HHS Office of Inspector General (“OIG”) issued a Special Advisory Bulletin entitled “Contractual Joint Ventures” (“SAB”). The SAB described a number of business arrangements that, in the OIG’s view, were potential violations of the AKS. In each case, one party to the arrangement supplied all or almost all of the services while the primary contribution of the other party was a patient base. The SAB includes several examples, including the following: “A group of nephrologists establishes a wholly-owned company to provide home dialysis supplies to their dialysis patients. The new company contracts with an existing supplier of home dialysis supplies to operate the new company and provide all goods and services to the new company.”

The OIG went on to list seven indicia or characteristics “which, taken separately or together, potentially indicate a prohibited arrangement.” In general, the greater the scope of services provided by the “manager,” the greater the likelihood that the arrangement is a contractual joint venture. According to the OIG, the practical effect of a prohibited arrangement is to provide the owner the opportunity to bill insurers and patients for business otherwise provided by the manager. In such a turnkey arrangement, the OIG views the manager, and not the owner, as the real supplier of the services, although claims are submitted in the name of the owner.

Applying the OIG’s analysis to proposed arrangement, ABC would be at risk of violating the AKS if it provided the orthopedic bracing program on a turnkey basis. ABC can provide some services to the physician (for which the physician must pay fair market value compensation to ABC), but the joint venture entity must retain operational responsibilities and financial risk. The fact that the physician, or personnel supervised by the physician, will prescribe and personally fit each patient with the custom-fitted orthotics is a strong indication that the physician will retain operational responsibilities. The physician should purchase inventory from ABC on a fixed monthly schedule and not on a case-by-case basis. A robust inventory is an indicator that the physician is exposed to financial risk concerning the orthopedic bracing program.

The most conservative approach to avoid AKS liability in the proposed arrangement is for the physician to pay ABC a fixed annual fee in monthly installments for the services provided. The fixed annual fee should be the fair market value equivalent for the services provided. A less conservative payment structure is a fee schedule  that lists the payments for service. For example, the physician will pay ABC $500 per month for inventory management, $50 for each repair, and $10 per claim for billing. This approach is less conservative because payments will vary based on patient volume, and the OIG disfavors this type of payment methodology. To reduce the risk associated with this approach, ABC can hire a qualified valuation consultant to conduct a fair market valuation for each service provided. Lastly, to further decrease risk exposure, ABC should render services to all of the physician’s patients, not just Medicare patients.

State Anti-Kickback and Physician Self-Referral Laws
In addition to analyzing the arrangement under the federal AKS and Stark, it is important to determine if the state (in which the arrangement will be implemented) has an applicable anti-kickback statute and/or physician self-referral statute. If so, then the arrangement needs to also comply with the state law.

Under federal law, physicians may bill Medicare for custom-fitted and OTS orthotics if properly enrolled as Medicare DMEPOS suppliers. If the arrangement meets the requirements of the “in-office ancillary services” exception, the arrangement does not violate Stark. Further, if the arrangement incorporates the recommendations set out above, then the risk of liability under the AKS is low. Lastly, it is important that the arrangement comply with applicable state anti-kickback and physician self-referral laws.

Jeffrey S. Baird, JD, is chairman of the Health Care Group at Brown & Fortunato PC, a law firm based in Amarillo, Tex. He represents pharmacies, infusion companies, HME companies and other health care providers throughout the United States. Baird is Board Certified in Health Law by the Texas Board of Legal Specialization, and can be reached at (806) 345-6320 or